The Geopolitics of Arab Oil: Or, The Increasingly Poor Decisions of the Persian Gulf

Remember the 1990s? The Internet was young and full of perverts; the Clinton presidency delighted us with so many a harmless scandal; and gas, oh the gas! (Or petrol, if you’re not from North America). What a fine time it was to own an SUV.

Of course, it didn’t last. Following the invasion of Iraq, oil prices, and correspondingly gas prices, scooted up and up. The Great Recession brought very temporary relief, but as soon as economic engines appeared to return to life, prices returned to their pre-crisis levels.

But rejoice! For Saudi Arabia and the states of the Gulf Cooperation Council (GCC) have rode to our rescue! Gas is now back to its 1990s levels and we’re all ever so grateful.

Though we shouldn’t be. For the GCC’s price war is hardly about altruism; like all states, they seek security.

But let’s take a wayback machine and return to the misty edges of our story. Here now is the tale of Arabian oil.

And let us travel to Arabia in the 1930s

There are few places on Earth where modern society encountered a blanker slate than Arabia. For purposes of clarity, we will exclude Yemen from our usage of the term “Arabia” for this article; being both more habitable and much older, Yemen has very little in common with the other states with which it shares the peninsula.

The 1930s was the decade of note in Arabia. Saudi Arabia finished its conquests and set the borders known today while oil wildcats roamed the deserts hunting for gushers. The tiny island of Bahrain was first; soon it was common knowledge that underneath the sands lay oceans of the black stuff. But the coming of World War II in 1939 meant all the gear and men needed to set up an oil industry were diverted to war. Arabia had to wait until after the war before oil exploration picked up again in earnest.

Arabia at that time was divided between British-run coastal states like the Trucial States, Oman, and Aden and the Kingdom of Saudi Arabia. Saudi Arabia existed solely because the British didn’t see the need to conquer it; they preferred control of Arabia’s coasts to destroy pirate bases that harassed shipping between British India and Britain itself. This imbalance of power was not lost on Riyadh; when oil money started flowing in, the Saudi kings hoped they could use their sudden wealth to build up a nation-state powerful enough to maintain their position forever.

And boy did they have enemies. Traditionally powerful states like Iran were sidelined by both Britain and the geopolitics of the Cold War, but Riyadh was under no illusions about Iranian intentions in the Persian Gulf (which the Saudis and most Arabs childishly call “Arabian,” despite a UN ruling against them). On top of that, being both Arab and Muslim was getting most complicated. Egypt championed pan-Arabism (with Egypt as capital, of course), while the Islamist revival that would burst forth in the 1970s was starting to bubble within Saudi Arabia. Neither thought much of the House of Saud.

As British power waned, every other nascent Arabian state followed the Saudi model. Oil gushing, they used their cash to increase their population, to subsidize economic development, to attract foreigners to come to do the jobs their own people couldn’t or wouldn’t do, and to arm themselves with the shiniest new war machines. By 1971, when the British Empire’s sun set on the Persian Gulf, every Arabian state sought a three step approach to development.

Find oil, or, if really necessary, natural gas, and sell it like mad to the West

Use that money to build all the trappings of a modern society, like roads, buildings, farms, etc.

Keep those roads fixed and the buildings filled by importing people from wherever necessary until the locals could be convinced to do those jobs themselves

Note that #1 was about selling to the the West, and not China, India, or any other power bloc. During the 1970s, the Communist bloc got its oil from the fields of the Soviet Union and everywhere else was too poor to buy the billions of dollars in oil Arabian states needed to grow.

This is key to understanding what’s going on today. It’s a common belief that the West needs Arab oil to survive; in point of fact, it’s Arab oil exporters that need the West.

And a fine example of that was the 1980s

After helping to form the OPEC cartel, Arabian rulers thought they had cornered a strategic market. They thought, as many still do, that they had a power over the West that could not be denied. To prove it, they threw their hissy fit oil embargo of 1973-4 to protest America’s one-sided support of Israel during the 1973 Arab-Israeli war.

The rulers believed their oil was so essential to the West – and specifically the United States – that the Americans would come crawling to them, begging and apologizing while simultaneously dropping their support for Israel.

Dubai’s World Trade Center in the 1980s. Note its forlorn loneliness; what Dubai hoped would be a boom town was a dusty ghost until oil prices rose in the 90s. (Source: medubai.com)

In 1973, when Henry Kissinger arrived in Saudi Arabia to negotiate, King Faisal reportedly told him, “You are the ones who can’t live without oil. You know, we come from the desert, and our ancestors lived on dates and milk and we can easily go back and live like that again.”

King Faisal was wrong – so incredibly wrong

And he grew more wrong by the year.

Instead of caving, the West adapted. It pushed stricter fuel standards, conserved energy, and survived the Energy Crisis. Rather than break America’s support for Israel, it bled the budgets of Arabia. Arabian states caved and opened the taps, having hardly put a dent in Israel’s military might or reversing Israeli gains in occupied Arab territory.

In 1979, following Iran’s revolution, a second energy crunch followed as Iran’s new Islamic government failed to provide the Shah’s same steady supplies of oil. Iraq then invaded Iran, both sides started shooting oil tankers, and Arabia’s new states found themselves in a less than glitzy 1980s with oil receipts far more modest than those today.

Through both experiences, the West learned to live with less Arabian oil, finding ways to save energy and drill more reliable sources. Arabian states – coalescing in 1981 to the Gulf Cooperation Council, or GCC – learned that when push came to shove, the West could live without them. But they, increasingly, realized they could not live without the West.

So Arabian rulers swallowed their pride and started acting a lot like Western vassals

The rise of an expansionist Iran in 1979 was scary enough; suddenly, in 1990, Saddam’s Arab Iraq went nuts and turned on his former Gulf patrons, who he felt were too demanding regarding the loans they’d given him during the Iran-Iraq war.

Vastly outmatched by geopolitically superior Iraq, who was armed with plenty of Soviet and American military kit, the GCC ran headfirst into the arms of the United States. The U.S. did indeed liberate Kuwait, but the cost was great to the GCC’s sense of independence; American military bases now dotted up and down the Gulf.

From the 1980s onwards, Saudi oil strategy hinged on ensuring that the West found no reason to adapt to life without Arabian oil. If prices got too high, they pushed them down to make green energy projects unattractive to energy companies and Western consumers. They wanted to keep the West addicted, but were fully aware that the West possessed the resolve to overcome that addiction if push ever came to shove. Arabian states decided to take their “oil weapon” and turn it into a drug.

So that helped secure their borders from outsiders, but meanwhile, inside their states, there arose…THE RESOURCE CURSE!

The resource curse is a similar kind of nightmare that befalls many a lottery winner. When you win the lottery, your first instinct is to buy all the shit you’ve been denied for most of your life. You may also want to help out friends and family; either you want to shove it in their faces, or you’re actually a good person. Either way, should your handouts become regular, your friends and family will come to depend on them. If you hand out too much, your family and friends will quit their jobs and waste time at your pool, since you, not their careers, now support them. They have, essentially, become Billy Madison.

The resource curse and its many friends. Hi there, civil war! (Source: globalizationandhealth.com)

This is pretty much what has happened in the petro-states of the Persian Gulf, though to varying degrees. While accomplishing step two, rulers found it essential to ensure their own local citizens were able to take part in the modern society growing up around them. Lottery winners can find that if they’re too miserly – or, they may say, too responsible – someone comes by and murders them. Rulers of the Persian Gulf states understood such a principle early on – and those that didn’t were ousted.

Remember step 3 was to convince Arabian citizens that they needed to do the jobs foreigners were bought in to start up

Everyone who comes to the GCC is technically a temporary worker, yet during my five years in the Gulf I met people who had been set up there since the 1980s and before doing simple jobs. It does not take 30 years to train a teacher, but Abu Dhabi, despite having all the money in the world, still can’t scrape up enough Emirati men to do the thankless task of educating Emirati youth. So Arabian states are permanently stuck on step 2, desperately trying to find a way to jump to step 3.

They cannot push too hard. In the 1960s, Abu Dhabi was ruled by tight-fisted Sheikh Shakhboot, who thought it best to hoard the flush of cash rolling into his palace. His people knew damned well he was holding out on them; they threatened revolt. The British, wanting to leave behind a stable government as they prepared to decolonize, negotiated a coup; Shakhboot was ousted and replaced by his more generous brother Sheikh Zayed. At the same time, in Oman, the British ousted the same type of too-traditional, too miserly Sultan in favor his son, who still rules today.

As the British left in 1971, they made sure to leave behind governments run by men smart enough to bribe their people. Each sheikdom was treated differently in details (Kuwait, for example, had to have a constitution guaranteeing free expression before the British agreed to withdraw), but the overall pattern was the same: energy wealth was to pay for stability.

Now it’s been three generations of people who have grown up with cradle-to-grave benefits, and who see no reason not to keep getting them

It’s common knowledge amongst Arabian citizens that their governments can afford to subsidize most of their basics. They expect free or cheap housing; free or cheap energy; free or cheap food staples; and, on top of all that, they expect cushy high-salaried government jobs that require little labor or skill to perform.

Well-intentioned Gulf Arabs like Mohammad here struggle against their compatriots’ very human instincts to take more and do less. (Source: Gulf News)

This is a totally modern development brought about by oil cash. Arabian culture always had a component of leaders being given power because they generously spread spoils, but never to the point of turning warriors to lardballs or children into brats. Rather, Arabian rulers have played upon that ever so human quality we all possess: when given too much free stuff for too long, we tend to become dicks about it.

Now to the oil price war unleashed last year

Shale oil technology became economically efficient because of the past ten years of sustained swings towards high prices. By the mid-2000s, most people had come to accept that prices would go up and up, and so energy companies were willing to fork over cash to develop fracking technology to get at those juicy shale beds that lay all over the United States and other countries. The GCC didn’t take that technology seriously until projections emerged pointing to the United States out producing Saudi Arabia in oil as early as 2020.

Worse, the West was getting more and more efficient with how it used oil energy. True, China and India were helping pick up the slack in demand, but neither China nor India were willing to commit troops or sell weapons to guarantee GCC security. If the West lost interest in GCC stability, it could be fatal for the rulers.

Crisis alert! Who can’t pay their bills? (Source: The Economist)

And that could not stand. So when OPEC met, Saudi Arabia and its closest allies, Kuwait and the United Arab Emirates, made it clear they would not drop production levels. They would, in other words, flood the market with cheap oil until it drove the shale men out of business and return things to the old order.

Except that won’t really work

Unfortunately, driving shale oil out business is not the same as un-inventing the technology used for it. That technology is out there; if prices ever go up, it will be used again. More than that, there will be no end to the drive towards green energy. Western governments have committed themselves to a long-term future that makes oil less and less valuable. The fact is, Western governments now see climate change as such a large threat that even with cheap oil, they will not stop trying to find carbon-alternative energy sources. That screws Arabian states, who have nothing to offer but carbon-heavy oil and natural gas.

Top that off with rising demand from their own citizens, whose plush lifestyles are getting expensive

In several ways, Arabian states have been wildly successfully. Their populations have exploded, providing the manpower needed to run strong economies and man militaries that can put pause to Iranian or (lately) Islamic State ambitions. They have cities, infrastructure, and well-armed security forces.

But their human capital remains breathtakingly weak. The most important jobs remain overwhelmingly dominated by foreigners, who mostly could give a shit about the long-term welfare of Arabia. Arabian citizens want all the latest toys but not to work for them; restructuring Arabian culture to value hard work requires generations and massive political reform.

Arabian governments haven’t the time for the first or the interest for the latter. While several GCC states have built up massive sovereign wealth funds – essentially just big national savings funds – they cannot bleed those forever. Some projections have Saudi Arabia running out of cash as early as 2022 if oil remains at its current price. GCC states could, of course, lend one another money and go into debt to buy more time, but regardless, the cradle-to-grave welfare system that they have built up over time must soon be pared back.

Nobody likes having salaries cut or benefits trimmed, and the GCC’s citizens won’t, either. Traditionally, GCC rulers have been able to throw dollops of money at unhappy folks, but since the problem will be that they’re out of money, their most effective tool for stomping dissent will no longer be there.

This leads to the problem of political reform and the suicidal refusal of GCC leaders to consider it

Beyond the spoiled brat complex that has emerged amongst many a GCC citizen due to their governments’ generosity, citizens that do want to accomplish something, whether because of ambition, talent, or patriotism, can only go so far. All the GCC states are run by royal families which brook little to no dissent; the best jobs and highest posts are rewards for loyal lackeys.

The-loyalest-get-the-best mentality permeates the economies of even relatively advanced places like the United Arab Emirates, where a thick Maktoum in Dubai could still stroll into most companies and land a job. Employers often complain of an inefficient or incompetent citizen-employee being “connected” and resign themselves to being unable to do anything about it.

Saudi Shi’a protesting in the Eastern Province. Yes, they do shout nasty things, and people do get killed out there. (Source: Islamicinvitationturkey.com)

Political reform would shake up such an equation, however. Nepotism and corruption could be exposed through freer medias; it could be rooted out through regular elections. While no state is immune to corruption, the least corrupt states are those that have self-corrective methods to address it. In GCC states, there’s no one to balance the royal families, few journalists (let alone media outlets) willing or able to find corruption, and few elections to replace terrible or incompetent leaders.

GCC rulers counter by pointing out the Egyptian example: set an Arab people free and they’ll elect Islamists, who will immediately seek to replace the democracy that empowered them with an Islamist dictatorship. Having spent five years out there, I suspect what they say is mostly true; that doesn’t keep their obstinate refusal to countenance a bit of political freedom any smarter.

And the result is a childish society of citizens completely unprepared for the adult conversations to come

GCC citizens have been trained to expect handouts in exchange for zero say in how their countries are run. Should the handouts ease or end, they will grumble. Having been allowed almost zero chance to run important things themselves, their grumbling will be chaotic, uncoordinated, and immature. The model here is Syria: the only thing the opposition could agree on was that it didn’t like Assad. Now there are so many stripes of rebels it’s hard to keep track.

The forward thinking model would be to allow the formation of unions, political parties, and associations on a limited scale. Over a decade, these groups could be allowed to compete, to discuss, and to maneuver in ways that would prepare them to take part in a civic society.

No government, however, has espoused such an idea. All of them are committed to the idea that their people cannot be trusted. That notion is self-defeating; rather than being reformed out of power (like the British monarchy was), they will be shot at, bombed, and eventually violently overthrown (like the French monarchy).

Damned if you do, damned if you don’t

The fragile peace of the GCC can’t last much longer. The rulers absorbed the lesson of the 1970s and 80s fully; they can’t rely on energy exports forever. But they can’t convince their own populations to build the economies necessary to maintain the way of life their people want. They have given their people a plush existence in exchange for political loyalty, but have also corrupted their human capital which has no economic incentive to learn, to grow, or to change. Their obstinate hold on power corrodes their populations further by denying them the ability to take part in national conversations and root out corruption.

Not all that far-fetched of a future for Arabia. (Source: NYTimes)

Alas, it’s very real that by this point a relaxing of political expression would bring forth a multitude of dangerous groups. The charge that Islamist groups only want democracy so they can subvert it has some merit; an Islamic State Fifth Column no doubt is in play in most, if not all, GCC states, while al-Qaeda cannot be said to be totally wiped out, either. So if they do relax, violent groups could use that space to cause instability and violence.

The storm is coming; the question is, when?

Too many factors point to instability in Saudi Arabia and, from there, to other GCC states. The raggedy edges in Bahrain, Kuwait, and occasionally in Saudi Arabia’s Eastern Province already flicker with violence. The GCC’s anchor is Saudi Arabia, and the Kingdom is in unfortunately major trouble. They will hope to break shale oil and return to the status quo of the 2000s, but no clock has ever been turned back. The days of Riyadh being over to paper over its society’s cracks with cash are running thin.

Woe to the royals; woe to their people. The coming years will be rough indeed.

Brilliant post. With the advent of Shale, I wonder why the United States is still interested in protecting the Arabian oil wells and their owners, especially given the fact that the vast majority of their sales aren’t destined to the US.

Thanks! There’s still an American interest in maintaining oil’s stability for worldwide economic growth. But American leaders are well aware of how much better their security would be minus oil, hence the reason greater fuel economies on cars and other laws that were controversial twenty years ago get through Congress these days.

Really, it boils down to ensuring American allies keep getting the oil they need until a better technology comes along.

But is the oil going to our allies? Their output primarily goes to India and China. Europe is powered by Russian and North African Oil.
It’s ironic how we have to pay for it’s protection, while others reap the benefit. That is the curse of Empire I suppose.

I wish I could find a source for which barrel goes where, but since oil is globally traded, it doesn’t matter where it goes or where it comes from. But you’re right – empire has given America the responsibility to protect places it would otherwise not care about. I still think I prefer that system over the pre-1945 chaos, which right now is the only alternative to American dominance.

Thanks! In my opinion, there’s not much the West or the U.S. can do to change the current trajectory in the Persian Gulf. There may be wise leaders hiding in the ranks that can change the course of events, but finding them will be outside the power of the West.

Instead, the West must do what it’s already doing: finding a way to live without Arabian oil. Preferably, that would be green, sustainable technology and better designed cities, but in the meanwhile shale oil can fill the gaps.

Fear of ME democracy by outside sources have always been driven by a dual narrative. The actual driving force is the goal to maintain states that can subjugate populations. The liberal “humanitarian” force is just what you describe, fear of Islamization etc.. However democracy has always been created in places where the population posed an existential threat to the democracy.

The US was predicated on ethnic cleansing and the “Democrat” party was the party of slaveowners; the balance of the founders of US democracy agreed on the need to create a government that would protect the minority of wealthy from the majority who were not wealthy.

Israel was similarly built on the ethnic cleansing expansionist Zionist institutions and its democracy has always been contingent on the exclusion of non-Jewish influence. On top of which, this embarrassment called itself socialist even while it exploits Palestinian labor and resources much like GCC states.

With all of this said, there is very little that can replace the momentum and determination to create and reinforce democratic institutions. The influence of military aid to undermine democratic institutions by creating stable, repressive states reflect the real interests of Western states, even while they laughably condemn their clients. Just look at Thailand – the US should be embarrassed to criticize them for their recent military coup, and the hilarious withdraw of military aid – which should have been stopped before it enabled repeated coups – reveals that there is knowledge regarding what Liberal Dem/Repub policies are causing, but that there is only a desire to create a false image of democracy in client states.

I believe much of what you say is true regarding the elites’ interests in the use of power. However, I subscribe to the view that much of this is accidental or the result of the way humans behave in large groups. While without a doubt elites set up systems that benefit themselves, these systems last because they successfully maintain acceptable levels of order.

The terrible modern truth is that just enough people aren’t educated properly in just enough places to allow true democracy. (The infamous “low information voter” comes to mind). A firewall of educated elites is still necessary to main order on the scale and size of the modern nation-state.

The good news, I believe, is that continuing prosperity and education are widening the base of those who have greater control over their own lives and who can find a way of life outside the strict systems of controls you’ve mentioned.